2009 (4) TMI 572 - AT - Central Excise

Summary

Issues:
1. Eligibility of cement used in mines as an input for modvat credit.
2. Imposition of penalty for improper availment of modvat credit.

Eligibility of Cement as Input for Modvat Credit:
The central issue in this case revolves around whether cement used as a construction/building material in mines qualifies as an eligible input for availing modvat credit under the MODVAT Credit Rules, 2004. The appellant argued that the cement should be considered integral to the manufacturing process, hence eligible for credit. However, the High Court of Rajasthan's decision in the case of Union of India v. Hindustan Zinc set a precedent by ruling that cement used solely for construction, repair, or maintenance in mines does not qualify as an input for availing Cenvat credit. The court emphasized that cement must be co-extensively used in the manufacturing process to be considered integrally connected with the final product. Consequently, the tribunal upheld the denial of modvat credit for cement used in mines as it does not meet the criteria for eligibility.

Imposition of Penalty for Improper Availment of Modvat Credit:
The tribunal also deliberated on the imposition of a penalty of Rs. 10,000 for the alleged improper availment of modvat credit by the appellant. The respondent contended that there was no violation of the law, and hence, no penalty should be imposed. The appellant argued that the previous favorable tribunal order and the recent clarification of the law by the Rajasthan High Court indicated no mala fide intention in claiming modvat credit for cement used in mines. Considering the interpretation of the law and the appellant's good faith reliance on the previous tribunal order, the tribunal agreed to set aside the penalty while confirming the denial of modvat credit. The appellant, who had already deposited the penalty amount, was entitled to a refund within six weeks. Consequently, the appeal succeeded partially, with the penalty being overturned, and the denial of modvat credit upheld.

In conclusion, the judgment clarifies the ineligibility of cement used in mines as an input for modvat credit based on the Rajasthan High Court's precedent. Additionally, it highlights the importance of good faith reliance on previous tribunal decisions in determining the imposition of penalties for improper availment of credit.